Return on Investment
Return on investment (ROI) is calculated by subtracting the project costs from the benefits and then dividing by the costs
ROI = (total discounted benefits - total discounted costs) /total discounted costs
The higher the ROI, the better
Many organizations have a required rate of return or minimum acceptable rate of return on investment for projects
Internal rate of return (IRR) can by calculated by finding the discount rate that makes the NPV equal to zero
Payback Analysis
Another important financial consideration is payback analysis
The payback period is the amount of time it will take to recoup, in the form of net cash inflows, the total dollars invested in a project
Payback occurs when the net cumulative discounted benefits equals the costs
Many organizations want IT projects to have a fairly short payback period